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WEST PALM BEACH, Fla.—With the Aug. 16 close of the Monitronics-Security Networks deal behind him, former Security Networks CEO Rich Perry is taking some time off, but he’s spending some of that time thinking about his next venture in the security industry.

A few weeks ago, in response to a Georgia appellate court decision upholding a verdict against Monitronics in a multi-million dollar case, Ken Kirschenbaum, an industry attorney, posed a simple question on his email newsletter to subscribers: "Why should an alarm contract be drafted so that judges find so much confusion?"

It's a fair question. There was little consensus among the appellate court judges, and some of the judges who concurred with the original verdict cited different reasons for doing so. While the case is not yet settled (it may yet move to a higher court), the implication seems to be that the exculpatory and limitation of liability provisions in the contract were not established in a manner that could provide adequate protection.

This is an issue that stands to remain relevant for central station alarm monitoring companies everywhere. The case, too, is a big enough deal that Kirschenbaum himself updated some of his standard form contracts to make the protective provisions more enforceable, and account for some of the worst case scenarios which surfaced in the Veasley v. Monitronics case.

From Kirschenbaum’s newsletter:

“Why did I make the changes even though the Monitronics case is likely to be appealed and hopefully reversed? Because the same issues raised in Monitronics have been and will continue to be addressed in courts all over the country. Courts are looking for ways to impose duties on the alarm companies and avoid contract enforcement.”

Part of what makes the Monitronics case so legally murky, and even intimidating from a contractual standpoint, is that the end result, as Kirschenbaum points out, was personal injury. What’s more, the injury was caused by service rather than equipment negligence, the court determined.

Kirschenbaum’s piece is worth a read in its entirety because it discusses the sheer breadth of considerations that have to be made when designing a contract with clear and enforceable protections. You can subscribe to his newsletter here.

There was additional speculation this week about whether activist hedge-fund manager William Ackman is intending to take a stake in The ADT Corp. An article in The New York Times said that his investing in the home security/home automation giant is more likely than his buying into FedEx, another company he is rumored to be considering.

The article said that’s basically because Ackman would have less say in FedEx, a much larger company than ADT, where he could wield greater influence.

There’s a possibility we could find out the answer later this week. Bloomberg reported July 9 that Ackman, who runs $12 billion Pershing Square Capital Management, was raising $1 billion over the next 10 days to buy a stake in a “large-capitalization, investment-grade U.S. corporation that principally operates in one business” that he didn’t name.

If he's successful, that would mean he’d have the money by this Thursday or Friday and he could reveal his pick then. However, he also could wait until later this year before announcing the choice, Nicholas Heymann, co-group head of global industrial infrastructure for New York-based William Blair & Company, told me.

"The issue is once you raise the money you have to put it to work," he said. However, Heymann said, "chances are, especially if it happens to be including some of his other 12 billion dollars of funds that he manages in addition to the $1 billion single stock fund, you and I are not going to know what his positions are until they’re reported 45 days after the close of the quarter, so we could end up hearing about this in mid-November." The news could come earlier if Ackman chooses to voluntarily disclose it, Heymann said.

ADT has told Security Systems News the company does not comment on market rumors.

But some other important industry news is also related to ADT, and that’s the recent announcement that Monitronics plans to acquire Security Networks next month.

“We continue to look at the ramifications of the Security Networks acquisition by Monitronics as it relates to the implied value of ADT,” Heymann said.

In a July 11 William Blair & Company industry report authored by Heymann, the company explained how that pending deal sheds light on the value of ADT. Here’s some more detail from the report:

Our belief that ADT remains the most undervalued company in our multi-industry universe was starkly highlighted with the announcement after the close yesterday that Ascent Capital Group’s (ASCMA $84.15) primary operating subsidiary, Monitronics International, has signed a definitive agreement to acquire Security Networks for total compensation of $507.5 million, or about 60 times Security Networks’ average recurring monthly revenue. Before the announcement of this transaction, Monitronics was the third-largest North American residential security company and Security Networks was the 14th-largest. Following the completion of the proposed acquisition, the combined company will have 1.034 million customers (almost the same number as Protection One, the current second-largest North American residential security provider) and, on a pro forma basis, hold just under a 4% share of the North American residential security market.

… The valuation paid for Network Securities by Monitronics would value ADT between $67 and $74 per share. On an implied market capitalization basis, ADT would be valued in a range of $15.4 billion-$16.8 billion, well above the company’s current $9.2 billion market capitalization.

ADT stock closed at $42.68 per share today. That's down 28 cents or .65 percent from its $42.96 close yesterday and Heymann speculated later today that talk that Ackmann was NOT interested in buying into ADT may have caused the drop, the opposite of last week when ADT stock climbed based on speculation that Ackman was interested. "We think Ackman may have been at this big hedge fund meeting this afternoon and said something that implied he was NOT looking at ADT ... or an ADT type company," Heymann told me in an email this afternoon.

So which company does Ackman have his sights on? The situation is decidedly very fluid, and very interesting. I’ll be reporting more on this. Stay tuned!

SACRAMENTO, Calif.—Industry veteran Steve Baker, who has served in executive roles at ADT, Monitronics and Westec, announced May 22 that his corporation, GHS Interactive Security, has acquired LifeLine Security and Automation as a platform for growth.

Sad news out of Texas: Don Trask, former vice president of operations for Online Alarm Quotes, died last week in Dallas at age 75.

“Don was one of the very first employees of Monitronics and helped build their central station,” Tom Fowler, president of Online Alarm Quotes, told SSN. “A very good soul. He was one of the nicest people I ever encountered in any walk of life. Please make mention of his passing and keep his family in your prayers.”

Trask was the executive vice president and CEO of Trask Enterprises, doing business as New West Security in Duncanville, Texas. Before his employment at Online Alarm Quotes and Monitronics, he worked for Southland Corp., the Arthur Trask Corp. and 3M Corp., according to his profile on LinkedIn.

Trask was born and raised in the Chicago area and attended the Kellogg School of Management at Northwestern University. He is survived by his wife, Elizabeth Sheri Trask; daughters Nancy and Elizabeth; stepson Corey, and his grandchildren.

“Don was the kind of friend that renewed faith in people,” Fowler said. “He was there for you without asking and without question.”

I had a chance today to talk to Mike Barnes about last week's Barnes Buchanan Conference. Below are some highlights of our conversation.

Interested in more insight on RMR and related growth? Check out the April issue of SSN for the 3rd annual Special Report of the SSN/Barnes Associates Wholesale Monitoring study. The study will also be available online on www.securitysystemsnews.com, and featured in a future Thursday morning newswire

The SSN/Barnes Associates Wholesale Monitoring study tracks the number of accounts monitored by the wholesale monitoring segment. As Barnes says, "There has always been great clarity on the performance of the top players, which on a combined basis have an approximate 51 percent market share." The challenge has always been to determine what is happening with the many thousands of smaller alarm companies that comprise the other half of the industry—this survey sheds light on that question. This year the response rate was even greater, thanks in part to the CSAA Contract Monitoring Council, which is a new co-sponsor of the survey.

Martha: What's the Barnes outlook for 2013?

Mike: We are bullish on 2013. Even with the economy still sputtering and some remaining challenges in the commercial segment, I think 2013 is likely to be better than most people are predicting.

Martha: What highlights can you share about the categories you generally hit on: growth, structure, operating metrics, market values?

Mike: The big surprise for 2012 was how much the industry grew RMR and related revenues. Our research indicates that these revenues grew by an astounding 8 percent. Quite a bit higher than expected. Overall industry revenues were flat, due to the decline in installation revenues. That is, installation revenues were down and RMR was up. This dynamic appears to be a combination of price shifting, where lower average-installation fees are exchanged for higher ongoing service charges, and continued shrinking revenues in the large commercial systems segment.

Martha: What was the most surprising metric this year?

Mike: By far the growth in industry RMR was the surprise metric. Additionally, it appears that this growth had a nice balance, with about half coming from higher average RMR per system, and the other half from a net increase in the number of systems.

Martha: Your bubble charts are always an interesting part of your Industry and Market Overview presentation. I heard there are now green bubbles on the bubble chart? What can you tell me about that? What new information do the new greeen bubbles bring to light?

Mike: Our bubble charts are a great way to graphically view acquisition activity. Each bubble denotes a transaction on a time-and-valuation multiple basis, with the size of the bubble indicating the amount of RMR involved. Basically you see three variables in a simple graphic. HIstorically, we have also added a fourth variable by shading the bubbles one of two colors to indicate the type of buyer, either an existing industry player or a new player buying a platform company. This illustrates how active each type of buyer is, and highlights the fact that new players entering the industry typically pay higher relative prices due to a combination of their selecting the better performers and paying a premium for their highly selective requirements.

This year we introduced a third color (green) which reflected transactions where only accounts were sold. Take the recent sale of a block of accounts by Pinnacle to Monitronics: As one would expect, the pattern becomes clear that accounts and their associated RMR have a finite value and trade within a relatively tight range, which is, of course, supported by the activity in the dealer program market. It also highlights that fact that when the market trades security alarm companies above this range, it is typically because of the account-origination capability. That is, the ability of the company to originate new customer accounts and related RMR at a cost and volume that is accretive to value.

It is often overlooked that when a company trades for a high multiple, say 45 times RMR, this is usually not an indication that the RMR sold was worth that amount. Rather, it is probably the case that the existing account base was valued at something in the 30s as a multiple of RMR, and the difference is predominantly reflecting the value of the account generation engine. This helps bring better clarity to the valuations realized by Vivint and other higher growth companies, and ultimately help buyers and sellers have a more productive conversation when referencing market transactions in their negotiations.

Martha: Other than the "must attend" Barnes' Industry and Market Overview, were there any notable educational sessions or talks?

Mike: We were extremely proud of this year’s conference, both because we had both the right attendees and great content. Our company presentations provided great insight into several players that are using new and innovative business models. Protect America is a great example. They are using a “direct to consumer” model that allows them to close the sale over the phone or internet, and to ship pre-programed and configured systems which are then installed by the consumer. It was amazing to hear how successful and large the company has become. Our C-Suite Roundtable was also notable with 4 of the top executives of major companies, including ADT, discussing trends and issues associated with the industry. These segments, combined with ones focusing exclusively on the capital markets and the largest deals that occurred in 2012…and, of course our industry overview…really gave our attendees a great conference.